Reserve Bank Governor Adrian Orr is refreshing his calls to the Government to give the bank more tools which could be used to tame the housing market.
But he has suggested that the Government's decision around giving the central bank debt-to-income (DTI) restriction powers is a political one, as it might adversely impact first home buyers.
"It comes down to a political decision around whether they [the Government] are willing, or not, to provide those tools and accept some of the challenges that may bring," Orr told media this morning.
His comments come as Finance Minister Grant Robertson prepares to unveil a suite of demand-side measures aimed at "tilting the balance" towards first home buyers.
Those announcements are expected in a matter of weeks and could include changes to taxation measures such as the bright-line test.
Orr was before the finance and expenditure committee this morning, answering questions for MPs, as was Treasury secretary Caralee McLiesh, who admitted that current tax settings "do favour investment into housing".
The Treasury is in the process of advising Robertson around a suite of demand-side measures to cool the market. Those are expected in mid-to-late February.
Robertson said yesterday that this advice was around measures to "…discourage speculation".
McLiesh this morning said demand measures could help put "downward pressure" on house prices.
But she refused to answer media questions after the select committee this morning.
Orr fronted up for questioning from MPs before McLiesh. The focus of much of the questioning was on housing.
"We would like to have debt-to-income, or debt servicing ratio tools," Reserve Bank Deputy Governor Geoff Bascand said.
These are restrictions on how much a bank is able to lend to a person based on their income.
Currently, the Reserve Bank does not have the ability to impose these restrictions – it needs the Government's sign-off to incorporate it into its toolbox.
But Orr was clear that the Reserve Bank wanted the option of implementing DTIs, if it wanted.
He did, however, warn MPs that having these restrictions in place could make it "much harder" for first home buyers.
Speaking to reporters after the committee meeting, he said that he had made it clear to Robertson what debt-to-income tools can and can't do.
Ultimately, Orr said, the decision is with Robertson but, as a politician, "he always has to think about the ups and downs, the relative efficiencies and palatability of instruments".
He said that it would be "incredibly difficult" to only target investors with DTIs.